1.25% hits a 31-year high—what comes next for Japan’s stock market?

The Bank of Japan raised its policy rate to 1.25%, the highest level since 1995. For investors, an interesting question has emerged: are rate hikes and rising stock markets necessarily in conflict?
The answer is not that simple.
Markets have long been accustomed to Japan’s low-interest-rate environment, but the situation is now changing. The BOJ raised rates by 25 basis points this time, while emphasizing inflation risks and continuing to pursue policy normalization. Coming just three months after the previous adjustment in June, this was one of the faster rate-hike cycles under Governor Ueda.
Rate hikes first affect financial conditions. Banks’ lending rates, corporate financing costs, real estate funding costs, and household mortgage burdens may all gradually be affected. At the same time, higher deposit rates mean savers can earn more interest income. The impact on Japanese households is not one-directional: indebted households and holders of financial assets may have differing experiences.
For the stock market, the impact also varies across sectors. Financial institutions such as banks may benefit from improved interest-rate spreads, while highly leveraged companies and sectors such as real estate, which are more sensitive to financing costs, will need to face a new funding-cost environment.
Therefore, what really matters is not simply “BOJ rate hikes = Japanese stocks fall,” but that Japan’s stock market may be entering a phase of sector differentiation.
After interest rates rise, capital will recalculate which companies have stronger profitability, cash flow, and pricing power. The core focus of Japanese stocks in the next stage may gradually shift from “valuation expansion” to “earnings quality.”#日本央行加息至1.25%创31年新高